How to survive in a “tough-profit” market

By Rick Johnson -- Industrial Distribution, 1/4/2007

“It’s not the strongest of the species that survive; nor is it the smartest. It’s not the strongest or the smartest; it’s the ones that are the most responsive to change that survive.”

Surviving the many ups and downs of today’s changing environment and the market forces we will face in 2007 it will require sticking to the basic principles of running a well managed business.

Market forces have been very kind to the majority of us through 2005 and much of 2006. However, the wave we have all been riding has shrunk at varying levels for every industry in distribution. The success we have enjoyed in the past may not be as easy to come by in 2007.

Past successes may have camouflaged internal problems and annoyances that could become a crisis under different circumstances in the New Year.

Maintaining acceptable levels of growth and profitability is a goal that I am sure is shared by virtually 100 per cent of the individuals reading this article. So, let’s review some principles that can help us maintain focus, uncover some of those sins that may have become covered by profitability and create the kind of success in ‘07 to be proud of.

Basic best practices
Take the time to review best practices as they apply to your business. Look at your processes, your procedures and your policies. Do they reflect good management principles?

What is your role?
Has your role in the market place changed? Are your business segments still the best match for your core competencies? Do an internal SWOT analysis (Strengths, Weaknesses, Opportunities & Threats) with your management team, and initiate a planning session to reflect upon your changing role as a distributor.

Strategic planning
If you don’t have a strategic plan, make it a priority to create one. If you do have one, go through an extensive review of all its initiatives. Do they still make sense? Has anything changed that could alter your focus?

Demand branch-level discipline
If you have multiple branches, insist on a branch-planning process that goes beyond turning in a budget. Make sure the plan includes documented timelines and accountability. Most importantly, make sure it is aligned with your strategic initiatives.

Employee development
Don’t cut training and development dollars. Continue to focus on people development. This will maintain employees’ respect and create a culture that will maximize employees’ efforts and willingness to do whatever it takes to create success.

Upgrade development
While employee development is critical to success, so is making sure that you have the right employees performing the right functions. Don’t let too much compassion for long tenure employees cloud your judgment. Make sure expectations are clear, employees are trained and have the proper resources, but if they cannot perform you must act swiftly.

Manage inventory
For the vast majority of distributors, inventory is the largest asset on the balance sheet, and the easiest to lose control of. Salespeople like to say you can’t sell from an empty wagon, but we all must realize that market forces will dictate what inventory levels are appropriate. Focus on eliminating aged and dead inventory and on individual high-volume turnover.

Sales effectiveness
It’s really fun being a salesperson in an “easy profit” market. It is not difficult to do well, and sometimes we can be lulled into a sense of eternal success that doesn’t require a 100 percent effort.

That attitude can lead to a comfort zone that is not healthy for long term success. Make sure your sales force practices a sales effectiveness discipline that requires documented action planning for specific targeted accounts that support individual territory plans.

Creating, instigating and managing these changes takes passion and courage. It’s not for the weak of heart, or for those who embrace simple, traditional expectations.

But effective leaders reach beyond those expectations to become agents of change. Change is imperative in a “tough profit” market. Most companies will thrive on the concept of change, achievement, responsibility and accountability.

Make it part of your culture in 2007, and you will not only be a survivor, but you will perform in the upper quartile of your industry.

Rick Johnson is the founder of CEO Strategist LLC., a firm specializing in leadership and the creation of competitive advantage in wholesale distribution. Contact him at rick@ceostrategist.com.